ARG-182 (2022 new)


The following memorandum is from the president of Primo Doll Manufacturing, Inc.

"According to a survey last year of parents who purchased the Elkie, our most popular doll, 90 percent reported that although their children were extremely satisfied with the doll's features, the doll quickly wore out with use. In a follow-up survey of the same parents, 80 percent reported that they would recommend a more durable version of the doll to their friends. In response to these surveys, we have created the Elkie-Advanced Doll, which has similar features to the original Elkie Doll but is manufactured using the same higher quality materials used by Optima Doll Manufacturing, our most successful competitor. Because parents can now purchase the beloved Elkie doll and be sure that it won't quickly wear out with use, we predict that our profits will exceed those of Optima Doll Manufacturing this year."

Write a response in which you discuss what questions would need to be answered in order to decide whether the prediction and the argument on which it is based are reasonable. Be sure to explain how the answers to these questions would help to evaluate the prediction.

According to the memo, the president of Primo Doll Manufacturing predicts that the company's profits will surpass those of its competitor, Optima Doll Manufacturing this year because, according to a survey, 80% of consumers would recommend more durable dolls to their friends. Therefore, the author argues that enhanced dolls made from the same materials as the competitor will be purchased by parents and are less likely to wear out. Although the author's argument has some logic, whether or not his prediction will produce the expected results depends on the answers to the following questions.

First, we need to know the validity of the survey results mentioned by the author. More specifically, we need to know how many people were surveyed and whether the results truly reflect consumer perceptions. If only a small number of people were surveyed, then 90% of the people claiming to have bought the less durable dolls may not be representative, so the author cannot assume that the dolls of their company are just more prone to wear and tear. Therefore, the author's prediction would be weakened. Furthermore, even though many people were surveyed and 80% of them claimed that they would recommend the dolls to their friends if the quality of the dolls is improved, we are still not sure that doll quality is the only criterion for consumers to make such recommendations. If consumers actually value the price of the dolls more than the quality, and they just don't indicate this tendency in the survey, then the author's prediction would be challenged. However, if it turns out that the survey results actually reflect the general opinion of consumers, then the author's prediction would be strengthened.

Second, even if Primo did need to improve the durability of the Elkie, should they use the same materials as the Optima? This is because even if the Optima is successful, its success may not be due to the durability of this material. Here, we need to ask what factors behind the success of Optima were. If we find that Optima's success is indeed due entirely to the durability of its dolls, and that this material ensures that durability, then it would be more reasonable for Primo to use the same material as Optima. However, if Optima's success was not due to the doll's durability, but rather to other reasons such as marketing, price, etc., then Primo's use of the same material as Optima would not have produced the desired results and the author's conclusion would be invalid.

Finally, even if Primo could use the same materials as Optima, would Primo's profits this year necessarily exceed those of its competitors? Switching to the new material would require a series of plant modifications and equipment upgrades, and these costs would affect Primo's profitability. If this is the case, the author's prediction that Primo's profits will exceed those of its competitors will be untenable. Moreover, even if Primo's own profits rise, the profits of its competitors may rise during the same period. If this is the case, Primo's profits will not exceed those of its competitors. However, if Primo is able to control its costs well and its profits rise faster than its competitors, then the author's conclusion is strengthened.

In conclusion, while I fully understand the reasoning behind the argument, I withhold my approval of the prediction until the author can provide clear answers to the aforementioned questions.

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